S.No.
Topics
1 Current status of NPO Sector in India
2 An overview of provisions of the IT Act
3 Computation & Accumulations in IT Act
4 Questions, Clarifications & Interactions
A Plan of this Presentation
Government Sector
Corporate Sector
VolunatoryOrganisations
Government Sector
Corporate Sector
Non Profit Sector
Different Dimensions to the NPO Sector
Evolution (Programme)
Economic
Entity (Legal)
Evolution (Programme)
Dimension
Conventional Classification
Educational Institutions
Health sector Organisations
Social Welfare Organisations
Evolution of new types of NPOs
Rights based Organisations (Human
Rights,Child Rights, Women Rights etc.
Networks, Forums, Collectives,
Coalitions etc.
Disaster Relief/Rehabilitation NPOs
A pledge by a women’s group
for Women Empowerment
Consumer Protection Monitoring
Economic Dimension
A Study by John Hopkins in 2000
India has 1.2 Million NGO’s: 53% in rural and 47% in urban
Of the 20 million persons involved, 85% are volunteers, rest are paid staff
73.4% of these have less than one paid staff, 8.5% have above 10 paid staff
Total receipts as on year 2000 INR 179,220 million (US $ 4000 million)
Another Study in 2012
A Study of Non Profit Institutions
By
Central Statistical Organisation
(CSO)
Entity (Regulatory)
Dimension
Three
Sectors
Not for PROFIT ORGANISATIONS
LEGAL FORMS FOR NPOs IN INDIA
MUTUAL SELF HELP
for PROFIT ORGANISATIONS
NPOs
SOCIETY
THREE LEGAL FORMS OF NPOs in INDIA–
TRUST Non Profit Company
Classification of Trusts3
Private Trust
Public Trust
Charitable or Religious Trust
Public Trusts
Meaning of Trust – Author, Property & Trustees
Applicable Legislations Charitable Endowment Act, 1890
Indian Trust Act, 1882
Bombay Public Trust Act, 1950
Charitable and Religious Trust Act, 1920,
Societies under SR Acts
What is a Society?
Membership, Governance
Applicable Legislations
Societies Registration Act, 1860
Religious Societies Act, 1880
Respective State Societies Registration Act
Purposes for which society can be formed
Sec 8 of Companies Act 2013 (Sec
25 of Companies Act 1956)
Meaning , Purpose, Procedure
for incorporation
License to be obtained
Incorporation
Managing the Company
Regulatory Framework
Incorporation Laws
Other laws and Regulations
Social Security Laws
Incorporation Laws
Indian Trusts Act, 1882
Societies Registration Act,
1860 or respective State Laws
Section 25 companies under Companies Act,
1956
Cooperative Societies Act / Mutually Aided
Cooperative Societies Act (MACs)
Other Laws and Regulations
Service Tax
Foreign Contribution
(Regulation) Act, 1976
Income Tax Act, 1961
Social Security Laws and Regulations
The Employees’ Provident Fund And Miscellaneous
Provisions Act, 1952
Payment of Gratuity Act, 1972
The Employees State Insurance Act, 1948
The Payment of Bonus Act, 1965
The Minimum Wages Act, 1948
Stakeholders and Accountability dimensions
State & CentralGovernment
Governance andManagement of the NPO
Public
BeneficiariesDonors
NPO
Central and Statement Government Laws
Income tax Act
Provident Fund
Act
Registration with
Social Welfare
Department
Foreign
Contribution
Regulation
Act
Registrar of
Companies
Societies
Registration Act
NPO
Brief Overview of
provisions in the Income Tax relating to Exemption
Definitions of key terms
S. 2(15), 2(24)
Organisational Exemptions
S. 10(23C), 11 – 13
Donor Exemptions
S. 80G & 35, 35AC
E-filing of Income Tax
Returns
Brief Overview of Provisions
Charitable Purpose – Sec 2(15)
Relief of the poor
Education
Medical Relief
Preservation of environment and
Preservation of monuments or places or objects of artistic or historic interest
Advancement of any other general public utility – Proviso (Trade, commerce or business)
Religious Purpose
A system of belief and worship usually in a supreme being
A religion is not merely an opinion, doctrine or belief but involves an outward expression in acts as well. AIR 1952 SC 282
Definition of "Income" Sec 2(24(iia)
(i)Profits and Gains
(ii) Dividend
(iia) Voluntary Contributions received by a
Trust wholly or partly for charitable or religious purposes
Association exempted u/s 10(21) and 10(23)
Fund / Trusts / Associations referred u/s 10(23C)
Organisational
Exemptions
Total
Exemptions
Annual /
Conditional
Exemptions
Income Tax
Income Tax
• Research Institutions - U/s 10(21)
• Educational Institutions - 10(23C)(iii ab )(iii ad)(vi)
• Medical Institutions - 10(23C)(iii ac )(iii ae)(via)
• Public Charitable Institutions - 10(23C)(iv)
• Public Religious Institutions - 10(23C)(v)
Income Tax
Sec Education Medical Conditions
10 (23C)
(iii ab) (iii ac) Substantially financed by Government
10 (23C)
(iii ad) (iii ae) Gross Receipts below 1 Crores
10 (23C)
(vi) (via) Gross Receipts above 1 Crore
10 (23C)(iv)
Charitable Institution of importance through out India or through out the state
10 (23C)(v) Religious institution
Total Exemption
Income Tax
Total Exemptions-Section 10 (23C) Continued…
Section 10(23C) - Proviso 14 to 17
14 – Application on or before 30th Sept.
15 - Anonymous donation u/s 155BBC
16 - Prescribed Authority CCIT wef 1-6-07
17 - Applicability of 1st Proviso to amended section 2(15) of the Income Tax Act 1961
Annual / Conditional Exemptions
Income Tax
Sl. No.
Annual Exemptions Sections
1 Registration 12A / 12 AA
2 Compulsory Audit of Accounts 12A(b)]
3 Application of Income (85%) 11(1)(a)
4 Accumulation of Income 11 (1) and 11(2)
5 Investment under section 11(5)
6 Filing Return of Income 139(4A)
Annual Exemptions
Income Tax
12A – Historical Development
• First introduced by Finance Act 1972 w. e. f 1.4.1973
• Application in Form 10A
• Time limit within one year from the constitution of the trust/ society/ institution
• No procedure prescribed
• No time limit for passing order
12AA – Subsequent Amendments
• Inserted by Finance Act 1996 with effect from 1.4.1997
• Procedure for granting registration prescribed
• Time limit for passing order six months
• Power for cancellation expanded
Registration u/s 12A / 12AA
Income Tax
Latest Amendments
• Conditions for applicability of section 11 and 12 as against conditions as to registration
• New sub section 12A(aa) inserted by the Finance Act 2007 w.e.f 1.6.2007
• One year time limit before the application is dispensed with
• Power for condonation removed
Consequences
• Registration from the financial year in which application is made –Section 12A(2)
• The income of earlier years will be taxed
• No condonation is allowed
Conditions for Applicability
Income Tax
Requirements
• Form No. 10 B to be certified by the auditor
• Limit was Rs.50,000 up to assessment year 2005-06
•Maximum amount not chargeable to tax
Latest Amendments
• Limit for compulsory audit maximum amount not chargeable to income tax – TLA 2006 w.e.f 1.4.2006
• Form No. 10BB in the case of Educational and Medical Institutions [Exemption u/s 10(23) iv, v, vi and via ]
Compulsory Audit U/s 12A(b)
Income Tax
44
Mandatory audit Compliance
Limit
Basic Exemption
Corpus donations includible
Time limit for filing the Report
can be filed anytime before completion of
assessment or even at the time of appeal
(Electronic filing regime – 10B filed before
uploading return)
Computation
Gross income
Minus
Automatic Accumulation
15%
Minus
Application of income
(Expenses)
Balance
Can be FULLY accumulated
and spent over 1 or 5 years
S. 11
Operation of Section 11 Exemption
Particulars Rs. lacs
Gross receipts 100
Less: Deduction u/s 11(1)(a) (15)
Balance income to be applied 85
Less: Income applied
Revenue expenses 70
Capital expenses 15 (85)
Total Income Nil
Computation of income Fully spent
Gross receipts 100
Less: Deduction u/s 11(1)(a) (15)
Balance income to be applied 85
Less: Income applied
Revenue expenses 50
Capital expenses 25 (75)
Balance Income 10
Less: Acc. & set apart – Exp 2 to Sec 11(1)(a) for 1 year
10
Total Income Nil
Acc. 1 yearComputation of income
Gross receipts 100
Less: Deduction u/s 11(1)(a) (15)
Balance income to be applied 85
Less: Income applied
Revenue expenses 40
Capital expenses 10 (50)
Balance Income 35
Less: Acc. & set apart – Sec 11(2) 5 years
(35)
Total Income Nil
Acc. 5 yearsComputation of income
Accumulation of Surplus Income Tax
Option 1: Exp 2 to Sec 11(1)(a)
Accumulate and spend in one year
Option 2: 11(2)
Accumulate for 5 years – for specific purposes GB resolution, application in Form 10, invt. In specified modes
If not spent in this time span, then taxable as income
Earlier Provision
• Minimum application was 75% of the total income up to AY 2002-03
• Accumulation was possible up to 5 years from the year of accumulation
• Inter trust transfer was possible up to assessment year 2002-03
Later developments
• The minimum application was raised to 85% from the AY 2003-04 by the Finance Act 2002
• The limit of 10 years for accumulation was decreased to 5 years w.e.f. 1.4.2002 by the Finance Act 2001
• Inter trust transfer from the accumulated surplus is prohibited from 1.4.2003 by the Finance Act 2002
Accumulation of Surplus
Income Tax
U/s 11(1) for one year
• Mere intimation to spend the subsequent year is sufficient
• No further formalities
U/s 11(2) for 5 years
• Resolution of the Governing Body or Board of Trustees
• Investment of surplus in modes prescribed U/s 11(5)
• Filing of Form No. 10 along with the Return of Income
• Tracking timely utilisation
Accumulation of Surplus U/s 11
Income Tax
Earlier Provision
• Filing of return of income was mandatory under section 139(4A) of the Act w.e.f 1.4.1973 for Trusts and institutions claiming exemption under section 11 of the Act
Later developments
• Finance Act 2002 inserted section 139(4C) making filing of return mandatory for Scientific research Association Sec 10(21) and Fund or institution exempted under section 10(23C)(iv), (v), (vi) and (via)
• Taxation Laws (Amendment) Act 2006 made filing of return mandatory for institutions exempt under section 10(23C)(iiiad) and (iiiae)
Filing of returns U/s 139(4C)
Income Tax
Donor
Exemptions
Section 80G
Section 35 AC
&
Section 35 (1) (ii)
Income Tax
Recognition u/s 80 G (50%, 100%)
Exemption u/s 35 (1) (iii)
Expenditure on eligible project or scheme u/s 35AC
Income Tax
DONOR EXEMPTIONSTYPES OF DONOR EXEMPTIONS AND REBATES
S. No.
Section Particulars Eligibility for Donor
Amount of relief for donor
1 35(1) (iii) Expenditure on research in Science/ Social Science
Assessees carrying on business
175% / 125%
2 35AC Expenditure on eligible projects or schemes for promoting social and economic
Assessees carrying on business
100%
3 80G(50% RELIEF)
Donations to charitable Institutions
All assessees 50% Restricted to 10% of Gross Total Income
Income Tax
TYPES OF DONOR EXEMPTIONS AND REBATESS. No
Sec Particulars Eligible Donors Amount of relief for donor
4 80G (100% relief)
Donation to
• P.M. National Relief Fund
• P.M. Armenia Earthquake fund
and others;
• approved university or educational Institution
All assessees 100%
5 80GGA Donation for Researchin social science or inRural Development
For non businessassessees
100%
Income Tax
Tax Deduction at Source and
Non Deduction
On Payments On Receipts
Income Tax
Tax Deduction at Source
Assessee expected to comply with all TDS provisions
No special exemptions to charitable organisations
However, Sec 40 (a) (ia) disallowance doesn’t apply as on date
Interest and Penalty (incl. late filing fee u/s 234E) applicable
Income Tax
Issue of Certificate u/s 197 for Non deduction of Tax at Source
Assessee Files application in Form No. 13
Certificate u/s 197 for non deduction issued by TDS ward
Assessee provides certificate to deductor
IF not obtained by assessee then refund claim submitted along with return
Income Tax
Evolution Of Definition Of Charitable Purpose
Section 4(3) of the IT act 1922 corresponds with Section 2(15)
Section 2(15) at the time of enactment of the 1961 act:
“Charitable purpose includes“relief of the poor, education, medical relief and
advancement of any other object of general public utility not involving the carrying on of any activity
for profit”.
Only one amendment to section 2(15) so far in 1983.
“Not involving the carrying on of any activity for profit”
removed and thus pre 1962 position restored
Charitable purpose includes
Relief of poor
Education
Medical Relief
Advancement of any other object of
general public utility
Definition of Charitable Purpose prior to Amendment
Income Tax
Proviso to the definition 2(15) is inserted:
“Provided that the advancement of any other object of general public utility shall not be a charitable purpose if
It involves the carrying on of any activity in the nature of trade commerce or business, or
any activity of rendering any service in relation to any trade, commerce or business
for a cess or fee or any other consideration irrespective of the nature of use or application, or retention of the income from such activity.
Amendment to the definition of “Charitable Purpose”
Income Tax
Charitable purpose includes
relief of the poor,
education,
medical relief,
preservation of environment (includingwatersheds, forests and wildlife) and
preservation of monuments or places orobjects of artistic or historic interest, and
the advancement of any other object of generalpublic utility.”
63
Section 2(15) defines “Charitable Purpose”
Inserted by the finance act 2009
Section 2(15) First Proviso
Advancement of any other object of general publicutility shall not be a charitable purpose
carrying on of any activity in the nature of trade,commerce or business or any service to above,
for a cess or fee or any other consideration ,
irrespective of the nature of use or application , orretention of the income from such activity
Section 2(15) Second Proviso
First proviso shall not apply if the aggregate value of thereceipts from the activities referred to therein is twentyfive lakh rupees or less
64
65
Corpus Donation is not defined, written direction fromdonor is required.
Corpus Donations, is it income?
Corpus donations upto 1988-1989 were outside the purview ofincome u/s 2(24)(iia), from 1.4.1989, exempted u/s 11(1)(d).
Can corpus donations be received through offertoryboxes?
Corpus Donations (Section 11(1)(d)
Carry Forward of Deficit
There are no specific provisions for carry forward
of deficit.
The Court have held that if a trust has incurred adeficit during a particular year, then the surplusmade by it in a subsequent year to make up for thepast deficit should be allowed to be set off againstsuch deficit.
CIT vs Maharana of Mewar Charitable Foundation164 ITR 439 (Raj.),
CIT vs. Shri Plot Swetambar Murti Pujak JainMandal, 211 ITR 293 (Guj.),
67
Anonymous donation Section 115 BBC introduced w.e.f 1.4.2007
Section 115 BBC (3): Anonymous donation means
Where a person receiving contribution does not maintain a record of identity (Name and address of the donor), any other particulars.
Anonymous donations liable to be taxed at 30% plus SC.
Exclusions
- wholly religious trust.
- Wholly religious and charitable trust, (but will apply to donations made with specific direction that it is for any university, educational institute or hospital etc.)
Trust covered by s.10(23C)(iiiab)/(iiiac)
..the income tax payable shall be aggregate of
1) amount of income tax calculated at the rate of 30% on the aggregate of anonymous donations received in excess of the higher of the following, namely:
a) 5% of total donations received by the assessee; or
b) One lakh rupees, and
2) Amount of Income tax with which the assessee would have been chargeable, had his total income been reduced by the aggregate of anonymous donations received in excess of the amount referred to in sub clause A or B of clause (i)
68
69
Section 11 (4A) Business Income of a Trust
As per Section 11(4A), the income earned by a trustfromany business activity shall be exempted from taxprovided the following conditions are satisfied:
The business carried on is incidental to theattainment of the objects of the trust and
Separate books of accounts are maintained inrespect of such business
Audit is required if income is in excess of the maximumamount which is not chargeable to income tax .
This is an audit necessary under the Income Tax Actand is distinct from an audit, which may be necessaryunder the Bombay Public Trust Act or a similar statuteunder the relevant State law.
An audit has to be conducted under the Income taxAct and an audit report furnished in form 10B.
While computing the limit for conducting an audit,exempt gross receipts have to be considered
70
Section 11 (4A) Business Income of a Trust continued…
Allowable as per commercial concept of
income – Several decisions
Now allowable – Also decisions and
department has not been allowing
Finance Bill 2014If the capital asset already has been claimed
as application, then no depreciation canallowed
Status of Depreciation
7
2
Denial of exemption
Section 13(2) – Income /Property used for person mentioned in sec 13(3)
Lending funds without adequate security or interest.
Land, building other property made available withoutadequate compensation.
Salary / remuneration in excess of reasonable amount.
Services of the trust made available without adequatecompensation.
Sale or purchase of shares or security for other thanmarket value.
Funds invested in a concern in which the person has asubstantial interest.
73
7
4
Denial of exemption